I am a research fellow at the Hoover Institution, at Stanford, and the Cullen Professor of Economics at the University of Houston. I am also a research professor at the German Institute for Economic Research Berlin. My specialties are Russia and Comparative Economics, and I am adding China to my portfolio. I have written more than 20 books on economics, Russia and comparative economics. I blog at paulgregorysblog.blogspot.com.

November 21, 2012 was a dark day for us Gen X-ers, who grew up with calorie-rich Twinkies and Ding Dongs in our school lunch boxes. (Nowadays, they would probably be confiscated by the food police, but that is now not then). After a failed mediation, Hostess Brands announced last Tuesday it would proceed with liquidation after 82 years of operations. Its various brands, many of them household names, go on the auction block as Hostess’s competitors, such as Flowers Foods, ConAgra, and Mexico’s El Grupo Bimbo, are poised to pick up Hostess’s iconic Twinkies, Wonder Bread, Ding Dongs, Home Pride, Ho Hos, and Dolly Madison brands.

A successful bid from Grupo Bimbo, the world’s largest baker, means Twinkies labeled “Hecho en Mexico” – the ultimate insult to the American baker and delivery man. News reports claim this result is likely. Twinkies can return as a highly profitable Mexican expat free from U.S. tariff-inflated sugar prices and unions.

The liquidation leaves Hostess’s 18,500 workers, most members of the Teamsters or bakery workers union, out in the cold. They are probably asking: President Obama: Where are you when Twinkies and Ring Ding Juniors need saving rather than Detroit?

Recriminations from organized labor fill the air. Obama ally, Richard Trumka, President of the AFL-CIO, blames “Bain-style Wall Street vultures making themselves rich by making America poor.” In Trumka’s world, high union pay, gold-plated pensions, and restrictive Teamster work rules have nothing to do with Hostess’s demise. No. Hostess was “Bained” by a greedy private equity company, whose goal was to destroy Hostess while making millions for itself and its greedy vulture investors as American “workers pay the price.” No matter what the facts, that is organized labor’s line. Someone else is always to blame.

Trumka’s tirade was designed to tee up Hostess for a media anti-Wall Street feeding frenzy. But we are still waiting for the screaming headline: “Wall Street Vultures Destroy Iconic American Company for Own Gain.” Despite intensive coverage of the Hostess bankruptcy, the mainstream media has largely given the private equity company that took control of Hostess as part of a bankruptcy process in 2009 a surprising pass.

Could the fact that Hostess’s private-equity partner, Ripplewood Holdings, is owned by one Timothy C. Collins, a major Democrat donor and pro-labor advocate, explain the media’s curious reticence to pounce on Wall Street?

Imagine the media outrage if Bain Capital had acquired Hostess, had hired a former congressman and presidential candidate to lobby for it and had placed his son in a lucrative board position, and had collected management fees until Hostess no longer had money to pay. Imagine a liquidation in which Hostess brands are acquired by a Mexican company that sells made-in-Mexico Twinkies to sugar-addicted American consumers.

We must turn to the ever-predictable New York Times’ account to explain the silence on Timothy C. Collins’ Ripplewood Holdings. Per the Times, Bain is a “bad” and Ripplewood Holdings is a “good” private equity firm. Timothy C. Collins is a benevolent private-equity tycoon, who donates big bucks to the Democrats. He wants to help the little guy. His Ripplewood Holdings is a mother hen. Bain Capital is a vulture.

For those, like me, who are confused, the Times goes on toexplain that Ripplewood Holdings wasn’t “part of a get-rich-quick scheme.” In fact, the benevolent Timothy C. Collins decided to “to make investments in troubled companies with union workers…. convinced that (he) could work with their labor organizations.” (Good luck on that one!) The troubled Hostess, with its rocky relations with its Teamsters and bakery workers union, was to be a model for such deals. According to the Times, pro-labor private equity companies that contribute to the Democrat cause and do not aim for a quick buck are absolved of capitalist guilt.

After acquiring Hostess Brands, Ripplewood hired former house minority leader and presidential candidate, Richard Gephardt – a longtime friend of labor – to work out a deal with organized labor to lower labor costs. As a token of good will, Gephardt’s son was appointed to the Hostess board at an annual compensation of $100,000. Timothy C. Collins clearly had his political bases covered. His money, however, meant little to labor leaders.

The concessions that Gephardt and Ripplewood extracted from the Teamsters and bakery workers union proved insufficient to correct (to quote the Times) Hostess’s “out of whack” labor costs. With $860 million in debt and a $1.2 billion net loss, Hostess filed for bankruptcy in January insisting that it could not continue to operate without further cuts in union wage, health and pension cuts.

The bakery workers union, enraged by pay raises for management, struck on November 9. Court-ordered mediation failed, and Hostess announced it would wind down operations. As a final straw, Hostess determined it could not service its $860 million in outstanding loans and keep contributing to the unions’ pension plans. Better an end to misery than misery without end.

At least Ripplewood Holdings had the good form to lose its shirt along with Hostess. The Times assures us that Ripplewood did not, like the Bain “horror stories,” pay themselves huge dividends and leverage the company even further. (We should ask who would lend Hostess more money under these circumstances.) I guess losing money is a virtue, and so much for Timothy C. Collins’ business model of helping troubled unionized companies.

But the Times cannot resist class envy rhetoric. It echoes union complaints that Hostess Brands “increased management’s compensation at the same time it was seeking to cut employee compensation.” The new CEO was paid $2.5 million and another executive received a $400,000 pay increase. (I guess unions cannot understand that top executives can jump a sinking ship pretty fast, ensuring that it actually sinks). But for the Bakery workers union that was too much: “Our members …. are not willing to take draconian wage and benefit cuts …. and give up their pensions so that the Wall Street vulture capitalists in control of this company can walk away with millions of dollars.”

Even as liquidation proceeds, the Hostess unions hold out hope for Hostess’s 18,500 workers. “When the various Hostess brands are auctioned off, surely the new owners will hire you as part of the package.” Small chance when higher union costs and work rules were the problem in the first place.

Although the liberal press gives Ripplewood Holdings a pass on account of its union friendliness and Democrat party donations, labor leader Trumka is in a less generous mood. Wall Street, not inflated union wages and Teamsters work rules, “destroyed an American icon and the working lives of some 18,500 families.” Take that Timothy Collins and remember: If you make your bed with vipers, you are likely to be bitten.

A question for Trumka: Why did you not ask the White House to create a “bakery czar” to dictate a bailout that injects billions of dollars from the Treasury into Hostess Brands in return for 51 percent government ownership. Hostess’s creditors and Ripplewood Holdings could be ordered to the back of the line, and the Teamsters and bakery union and their pension funds could be given the remaining shares along with their existing contracts. Everything could have worked out just fine. Obama will have saved 18,500 jobs, Twinkies, and Ding Dongs.

Maybe Trumka could have made the sale. After all, where would the President be without the AFL-CIO? Oh, but I forget: Obama has run his last race for elective office, and how could any President sanction such an obvious political bailout of a private company?

Paul Gregory’s new book The Global Economy and its Economic Systems will be published shortly by Cengage.

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Having spent a career in quality and productivity improvement the one thing we know, with a union shop it is almost a non-starter. There isn’t enough flexibility in the typical union to allow any improvement. This would require a person to do several jobs they didn’t do before to reduce hand-offs that take time and cause mistakes. The work would be more interesting, productive, and the job more secure, but the union bosses would not hear of it. I have seen poor managers so I don’t assume anything about Hostess managers but some of the union rules they had to deal with:

(From Sodahead.com) “Union rules at Hostess having nothing to do with wages or benefits drove the company to bankruptcy.

Here’s a partial list of the union rules at Hostess:

- Twinkies and Wonder Bread had to be delivered to stores in separate trucks (even when going to the same store)

- Twinkie truck drivers couldn’t also be Wonder Bread truck drivers

- Truck drivers couldn’t load their product into the trucks – that was done by “loaders”

- And yes – Twinkie loaders couldn’t also be Wonder Bread loaders! ”

It would not take many rules like this to cripple any attempt to improve productivity.

Not all Unions are bad, and not even in this case. The executives at Hostess were unable to participate in a ‘shared sacrifice’. Greedy and cold. While employees were being over worked, under paid and benefits cut, executives were giving themselves pay raises. One executive got close to 1/2 million dollar pay raise? Yeah so the union said they were not allowed to load their own trucks. UPS and FedEx drivers don’t load their own trucks. Driving and unloading is stressful enough. So the employees couldn’t stand it any longer. They were basically making min. wage anyway by the time they divided their hours worked by their dollars per hour, and poor benefits. They really had nothing to loose by striking. In fact it proves the resolve of the American worker to risk their job on principals. This hopefully will be a lesson to big business that wishes to take advantage of workers. I praise their actions, because you know who really got shafted were the greedy executives who now have to look for another company they can manipulate and take advantage of workers. The President didn’t cause this, the unions didn’t cause this. The executives at hostess caused this because they were unwilling to participate in shared sacrifice.

great article…this is the kind of “fighting”, “bringing things to light”, is what i like to see/read…..keep it up…this style of “business” reporting is very good for us..the civilian workers in USA….the government is a union….the civilian workers are a union…..therefore….all human believe in a union……government should be rescuing businesses like this….and supporting higher wages for the civilian voters…

18,500 hard workers…….the world-wide mantra..a company around for 80+ years…making and selling huge volumes of product….to a huge share of the market….bringing in huge amount of revenue….how many “hard workers” turned into living the american dream of becoming “rich” with this company…..80+years of hard work…and let’s get that info divided into number of men…number of women…..